The proper steps in the preparation of Income and Expenditure account…

The proper steps in the preparation of Income and Expenditure accounts are :

A. Exclude Capital receipt and Capital payment

B. Close the account to find out surplus or deficit for current year.

C. Consider only revenue receipts and revenue payment

D. Persue the receipts and payment account

E. Make adjustment for outstanding and prepaid expenses and income.

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → D, A, C, E, B

(D) Persue the receipts and payment account — first read it thoroughly.

(A) Exclude Capital receipt and Capital payment — they belong to the Balance Sheet.

(C) Consider only revenue receipts and revenue payment — these go to the Income and Expenditure Account.

(E) Make adjustment for outstanding and prepaid expenses and income. — so that only the current year’s figures are taken.

(B) Close the account to find out surplus or deficit for current year. — the balance is the surplus or deficit.

Note: This question is from the pre-rationalised NCERT book. The topic is not there in the latest NCERT book (2026-27), but it is still in the CUET 2026 syllabus, so do not skip it.

NCERT (Pre-rationalised edition):
Steps in the Preparation of Income and Expenditure Account – “Following steps may be helpful in preparing an Income and Expenditure Account from a given Receipt and Payment Account: 1. Persue the Receipt and Payment Account thoroughly. 2. Exclude the opening and closing balances of cash and bank as they are not an income. 3. Exclude the capital receipts and capital payments as these are to be shown in the Balance Sheet. 4. Consider only the revenue receipts to be shown on the income side of Income and Expenditure Account. Some of these need to be adjusted by excluding the amounts relating to the preceding and the succeeding periods and including the amounts relating to the current year not yet received. 5. Take the revenue expenses to the expenditure side of the Income and Expenditure Account with due adjustments as per the additional information provided relating to the amounts received in advance and those not yet received. 6. Consider the following items not appearing in the Receipt and Payment Account that need to be taken into account for determining the surplus/ deficit for the current year : (a) Depreciation of fixed assets. (b) Provision for doubtful debts, if required. (c) Profit or loss on sale of fixed assets.”